Monday, April 17, 2017

Multiple Routes Between China And Europe Is Why The New Silk Road Is A Real Game Changer

https://www.forbes.com/sites/wadeshepard/2017/04/17/multiple-routes-between-china-and-europe-is-why-the-new-silk-road-is-a-real-game-changer/





Wade Shepard , CONTRIBUTOR

Wade Shepard

A train bound for Germany pulls into the Khorgos Gateway dry port in Kazakhstan on the Chinese border.

The power and potential of the Belt and Road — aka the New Silk Road — lies in its versatility. This emerging network of revitalized transportation routes and new trading hubs which stretch between China and Europe finds efficiency, security, and healthy competition in the fact that it is not a single route but a network of multiple, interconnected trans-Eurasian corridors. Like in the days of the ancient Silk Road, if one corridor goes down due to a change in government, war, an economic upheaval, or a spat over tariffs, cargo can simply be shipped to similar destinations via alternative routes — like a river flowing around a boulder.

Eurasia, the continental landmass that contains both Europe and Asia, is rapidly being drawn into a single massive market covering upwards of 65% of the population, 75% of energy resources, and 40% of GDP in the world, and it is revolutionized rail routes that are the strings tying it all together.

There are currently three operational rail corridors that physically connect China and Europe. The northern one goes mainly through Russia, and for the most part follows the route of the Trans-Siberian Express. The central route goes all the way across Kazakhstan before linking into the northern route in the west of Russia. While the southern route goes through Kazakhstan to Aktau and either crosses the Caspian Sea by ferry or goes around to Iran before going through Azerbaijan, Georgia, and Turkey. Along each corridor the transport time is in the ballpark of 10.5 to 16 days.

While the north and central overland routes of the New Silk Road are currently booming, the southern one is just now becoming established. While the more developed routes efficiently link together just three large customs zones — China, the Eurasian Economic Union, and the EU — amounting to just two “border” crossings along the 9,000+ kilometer journey, the southern route is a little more complicated. Entering into Kazakhstan from China at Khorgos, the line then enters separate customs regimes in Azerbaijan, Georgia, and Turkey, before connecting into the European rail network.

Ironically, a couple of marked political and economic conflicts have actually led to increased development of this southern corridor.

“This route came about to go around Russia,” Martin Voetmann, who currently works for DP World at the Aktau seaport, spoke bluntly.

The EU leveling sanctions against Russia over the Ukraine conflict sparked a reactionary embargo by Russia against many EU products. Not only are European products like meat, produce, and cheese prohibited from being imported into Russia but they are not even allowed to be transported to third party countries across Russian terrain.

“The big problem that we face is that there are still sanctions in Russia to move perishables over from Europe to China or Europe to Kazakhstan through Russia. That’s the bottleneck at the moment,” said Jan Koolen from Unit 45 — a company that manufactures high-tech shipping containers which allow sensitive electronics and perishables to be shipped overland between China and Europe year round. “But now they are also looking at another corridor, which is Baku-Aktau, the southern route.”

The main advantage of going around Russia is that manufacturers and freight forwarders can sidestep the country’s reactionary sanctions and get their goods to their desired markets unimpeded. Up to now, the Russian embargo has severely hamstrung Europe’s ability to fully leverage the newly established trans-Eurasian rail network, as the type of products that its producers would otherwise ship overland to China largely happen to be the same ones that Russia prohibits. The trans-Caspian route provides a workaround to this trade blockade, and the corridor is starting to gain momentum the more Europe seeks to fill the backload of rail cargo to China.

“You have the return factor,” Voetmann began. “You end up with your containers and your platforms in Europe, now what do you do with them?”

It’s logistics 101: a closed circuit where containers are transported full of goods on both outbound and return journeys is optimal. The China to Europe side has been activated — nearly 2,000 trains have now cross Eurasia going west. Now the intrigue is to fill the capacity for the return trips to China, presenting Europe with a new way to access the booming Chinese middle class in the process.

Major initiatives, like the commissioning of the first UK to China direct cargo train last week, the creation of New Silk Way Logistics, a joint venture between three of Europe’s largest freight forwarders, and the Kazakh multimodal company KTZ Express setting up operations in Europe, show that accessing China by rail is becoming increasingly attractive to Western companies.

Voetmann is currently busy at work coming up with solutions to establish the port of Aktau as a hub for west to east trans-Eurasian cargo.

“So potentially you can find a fast and fairly cheap [option] for the return cargo coming from Europe and into China,” he said. “It’s fairly fast and maybe we will be able to do it in a cheaper way, so it opens up a whole new range of possibilities once you have this route established.”

However, the southern rail corridor is currently only running on an as needed basis. There is not yet a regular service, but this is set to change.

“As demand for the services on the Southern rail corridor continues to grow, the authorities in Lianyungang and Chengdu are looking to introduce scheduled services into Istanbul in the coming months. Once in place, these scheduled services will enable greater flow of goods along the corridor and spur China-Europe trade,” said Steve Huang, the CEO of China operations for DHL, the German freight forwarding giant who is one of the core companies that are blazing trails along the New Silk Road.

Pushing forward regular service on the southern rail corridor is the soon to be launched Baku-Tbilisi-Kars (BTK) rail line, which will directly link the port of Baku in Azerbaijan with Turkey.

“The Baku–Tbilisi–Kars railway is expected to be completed in 2017. Once its operational, transportation from China to Turkey will be faster and more cost effective,” Huang continued.

The power of China’s Belt and Road initiative and the broader New Silk Road is found in the fact that a diverse and interconnected network is being created — a supercharged economic grid that is being superimposed over the whole of Eurasia — not a single route which can be easily disrupted.

Or, as my seven-year-old daughter once put it:

“You just said that there are many roads, daddy, that means you have to call it the New Silk Roads.”

I'm the author of Ghost Cities of China. I'm currently traveling the New Silk Road doing research for a new book

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